Due Diligence

The practice of a systematic process to screen prospective acquisitions is of the utmost importance to our success.  Our process is a 3-phase approach so that our time is spent on activities most likely to lead to a few sound investments.  To use baseball vernacular, we don’t mind looking at a called strike – passing on a good deal; we do mind swinging at a ball out of the strike zone – doing a bad deal.

Phase 1

We aim to provide the deal source initial feedback promptly on our level of interest.  We desire to look further at deals that meet these primary requirements:

• Lower middle market company in size,
• Business that we understand and can manage effectively;
• A stable to increasing Return on Invested Capital in excess of 9.5% (3 years of financial history at a bare minimum); and
• Reasonable pricing expectations.

Phase 2

We will rely strictly on the information provided by the company and meetings with company management to further screen the investment opportunity.  We will presume the information is an accurate representation of the situation.

We will be interested in taking deals to phase 3 that meet certain well-defined criteria.

• Stable market outlook;
• Attractive industry structure;
• Defensible competitive position;
• Solid business franchise; and
• Plausible opportunities to create incremental value; and
• Acceptable expected financial returns

With a sound investment thesis, Phase 2 will culminate with the submission of a Letter of Intent subject to satisfactory completion of due diligence and financing.

Phase 3

Phase 3 of the due diligence process is absolutely critical to our overall success.  We employ a comprehensive, systematic and rigorous approach.  We strive to know as much as the seller about the issues material to the future of the business.    

The primary objective is independent verification of the investment thesis.  The critical premises will be examined closely so conclusions, supported by facts, are developed for each one.  When necessary, primary market research will be conducted to confirm our outlook on the market, industry attractiveness and the defensibility of company’s competitive position.  Outside resources will be retained, as necessary, to conduct financial, legal and environmental due diligence.

Once our investment thesis is verified, Phase 3 will culminate with commitment to negotiate a definitive purchase agreement for the assets of the business.